Gear & Gadgets —

Intel hammered by EU, faces $1.45 billion fine

European antitrust officials have come down hard on Intel for its past actions …

Although the Obama administration is indicating that it will be more aggressive about enforcing antitrust regulations, the European Union has been pursuing high-profile cases for years, having levied a large fine against Microsoft back in 2004, and hitting the software giant again last year. The latest target of the EU's Competition group is the chipmaker Intel and, this morning, the EU announced that it too would face a hefty fine: slightly over �1 billion, which comes in just shy of $1.5 billion. Intel is already promising to appeal but, in the meantime, it's going to have to drop over half a year of its current profits into a bank account in case its appeal fails.

The full decision, which is over 500 pages long, hasn't yet been released to the public, but a summary of the EU's case is available. It focuses primarily on the company's pricing practices during the years 2002-2005, when Intel was facing growing competition from AMD in the desktop and server space. The EU authorities also cite an instance of similar practices in the notebook space in 2007, a time when that market was rising in prominence.

The Commission has concluded that Intel paid one manufacturer to delay the release of AMD business desktops, keep them from being sold through distributors, and block their sales to enterprise customers.

In short, based on information gained from internal e-mails and testimony from OEMs such as Acer, Dell, HP, Lenovo, and NEC, the EU found that Intel provided companies volume rebates that prevented AMD from expanding its market share. Different companies got the rebates at different percentages of their total sales; some got the rebates provided they kept Intel processors in over 80 percent of their machines, while Intel managed to keep one OEM an Intel-only shop.

The EU argues that Intel's market dominance ensured it was the only one with the capacity to supply the majority of processors to these companies, which made what might otherwise be optional discounts essential for OEMs. EU Competition Commissioner Neelie Kroes said that the decision was based in part on an analysis of whether a smaller, but equally efficient competitor could have matched the post-rebate prices, and found that they couldn't. Real-world evidence to back up that analysis came from the finding that one company turned down AMD's offer to supply it with a million free processors, and accepted only a fraction of that number.

It could be argued that there's nothing especially unusual about volume discounts—and Intel certainly has done so—but the EU has also documented some more obviously egregious activities, where Intel paid companies to limit AMD's market penetration. The Commission has concluded that Intel paid one manufacturer to delay the release of AMD business desktops, keep them from being sold through distributors, and block their sales to enterprise customers. Two other OEMs were paid to delay the introduction of AMD-based notebooks. The retailing chain MediaMarkt was also paid to keep AMD computers off its shelves.

All of this, in the EU's view, seriously distorted competition in the microprocessor market. "The fact that Intel had such a large market share is not a problem in itself," said Kroes. "What is a problem is that Intel abused its dominant position. Specifically, Intel used illegal anti-competitive practices to exclude essentially its only competitor, and thus reduce consumer choice, in the worldwide market for x86 chips."

EU documents also cite Intel's attempts to conceal these practices in several places—the rebates weren't part of the text of Intel's contracts with these companies—which suggests that this might have contributed to the size of the fine.

Intel, for its part, couldn't disagree more. Paul Otellini, Intel's CEO, released a statement at what was roughly 4:00 a.m., Santa Clara time, in which he said, "Intel takes strong exception to this decision. We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace."

But, in the face of some of the specific allegations made by the EU, some of Otellini's statements seem almost besides the point. For example, Otellini states that, "Intel never sells products below cost," and "there has been absolutely zero harm to consumers." Both of those may be true, but that doesn't necessarily mean that Intel wasn't abusing its dominant market position.

Nevertheless, Otellini did say that the investigators, "ignored or refused to obtain significant evidence that contradicts the assertions in this decision," and that these would be the grounds for its appeal. In the meantime, it will have to cough up the cash. The company had nearly $8 billion in cash and short-term investments at the end of its last quarter, so this won't hurt its business operations at all. But, at current profit levels, it will take the company over half a year to refresh the hole in its balance books, which can't make the accountants happy. Wall Street, for its part, seems rather indifferent to it all; the company's stock is up slightly in premarket trading.

60 Reader Comments

The EU has been persuing cases, yes, but mostly because the competitors who are miserably far behind the leaders whine and cry long enough that the regulators will do anything to shut them up. Mozilla and Opera are the first of the crybabies that come to mind.

There's a difference between losing because you don't have efficiencies and economies of scale and losing because your competitor paid your customers not to buy from you.

I don't think you can purchase AMD chips from Dell, so that's probably the one OEM that's Intel-only. Last time I looked at Dell (before Ubuntu came out; so this was 2002-era) you couldn't get AMD from them.

If it were only Dell's decision, then it'd be fine. But it seems Intel had a hand in it...

Intel, for its part, couldn't disagree more. Paul Otellini, Intel's CEO, released a statement at what was roughly four in the morning, Santa Clara time, in which he said, "Intel takes strong exception to this decision. We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace."

This is even less credible than MS pointing at Linux or at OS X as examples of why they don't have a monopoly over the PC desktop. The microprocessor marketplace, at least in terms of x86-compatible chips, could only be described as "competitive" in terms of product quality after the launch of the AMD Athlon. And despite having better technology than Intel from the launch of the A64 right up until the C2D was released, a period of about 3 years, AMD has never been able to break 25% marketshare in the x86 processor market. Intel has always had a monopoly or near-monopoly in the x86 market, even when the products they were selling were overpriced and slow relative to the competition.

Furthermore there is extensive documentation that Intel undermined AMD using price discrimination/comarketing agreements with large PC OEMs that only used Intel processors, and that this practice only recently changed. This is why Dell was Intel-only until 2006, despite AMD being both cheaper and faster than their Intel counterparts during that timeframe.

I like Intel's products, every PC I currently own is based on not only their CPUs, but their core logic as well, and they've done great things to advance microprocessor technology. I also own stock in the company and would do better frankly if these kind of fines were not imposed. But the bottom line is that Intel did abuse their market position using shady deals with OEMs to prevent AMD from grabbing a share of the market reflective of the quality/price of their components for several years.

The market is more competitive now despite AMD being damn near bankrupt and their designs behind schedule. This is mostly due to Intel's underhanded tactics stopping in recent years. However, while it's less of a concern now, they still need to answer for what they did in 2001-2006, because their actions may have seriously harmed the market if AMD's financial woes cannot be resolved.

The fanboy yammering on this one will be endless and full of gloating or howling depending on perspective. But whatever ... DEAL WITH IT.

Folks need to see that there is a fundamental restructuring of the marketplace happening here, and that it is likely that the changed perspective in the US with the Obama administration will follow suit in some way.

Basically, like it or not, Intel will NOT be permitted to monopolize digital technology. There WILL be some viable competition... even if governments need to step in to create it.

Originally posted by eldonyo:The EU has been persuing cases, yes, but mostly because the competitors who are miserably far behind the leaders whine and cry long enough that the regulators will do anything to shut them up. Mozilla and Opera are the first of the crybabies that come to mind.

The EU is not alone in their actions against Intel. The South Korean FTC fined them IIRC (only a paltry $26m, but still), and the Japanese FTC issued some guidelines to them in 2005 because of their actions. The two situations are not really comparable.

Yes, the FTC is also pursuing Intel for the same charges. Its not the EU being greedy, its Intel not competing fairly.

This is going to hurt Intel's bottom line a lot, as it should. Personally I think those responsible, ie the human individuals who made those decisions, should lose their jobs and be barred from any corporate role for 5 years.

I'll second some of the things you mentioned. During that time AMD was majorly and REPEATEDLY dominating Intel speed/performance-wise. And yet if you wanted an AMD processor you'd most likely have to build your own machine. And Intel was completely unable to respond time and time again. They'd get close briefly but then AMD would turn right around with another CPU which would keep the performance gap widely in its favor.

How about I go to your employer and offer him a ton of cash and other incentives to fire you, and all the other prospective employers to not hire you. Would that not be irksome to you? Would you not be a crybaby when your bank reclaimed your assets, you lost your house, and you joined one of those tent cities that are starting up in the US?

I think that the EU doesn't go far enough. The folks who made these choices for Intel made the right choice. Sometimes it's better to take the penalty than to not play the dirty trick. Because of Intel's tactics, they kept their dominance over the market. Whatever the fines are in the next few years, it is well worth it from a business and competitive standpoint.

I would like to see AMD get a chunk of change for Intel's tactics, though, to help it strengthen its position and perhaps reverse some of the decline it saw over the last few years.

Originally posted by eldonyo:The EU has been persuing cases, yes, but mostly because the competitors who are miserably far behind the leaders whine and cry long enough that the regulators will do anything to shut them up. Mozilla and Opera are the first of the crybabies that come to mind.

If you are referring to the antitrust case against Microsoft because of Internet Explorer then it would seem you have become detached from reality. Not that you're likely to listen, but perhaps you should take a course in economics specifically focused on the damage that monopolies can do. (Are you seriously suggesting that IE6 was a gold standard and further browser development was unnecessary because if that's the case then words fail me.)

What Intel has done here is utterly despicable and they are fortunate to get away with such a meager fine.

Originally posted by rays username:What does the EU do with all this money? I hope they're giving some to AMD.

Nope. Goes towards running the EU. I wonder if this means AMD can go after Intel in a civil case of some sort.

AMD already has a civil suit open in the US against Intel. I think it's in the discovery phase right now. This should certainly help that suit. Especially if the US DOJ decides to get in on the action (not likely, even with a more progressive Obama admin running it).

I think it was an Asus K7N... it came in a blank, white box because Asus were apparently terrified of putting their name on a board that supported the Athlon.

I find it disappointing that Intel felt it was unable to compete fairly and had to abuse its superior leverage in the marketplace to bludgeon a competitor 1/10th. Hopefully this will be the first decision of many that will bring Intel back in line with acceptable market practices, and hopefully preserve AMD's status as a viable competitor.

Given that this was an EU decision though, I wouldn't expect it to influence the US decision in any positive manner - I simply don't have any faith that the political machinery in the US is capable of making a fair decision and enforcing it adequately.

I think that the penalty is deserved, even if Intel seems to be doing better recently. If we let companies play dirty tricks such as this without some kind of punishment they will all start doing this and there would be nothing but monopolies.

It is more cost effective for companies to be a monopoly and milk the consumers dry than to compete in a free market, so most markets naturally tend to evolve to be ruled by quasi monopolies. The only thing preventing this natural evolution is anti-trust action such as this, or the creation of a completely revolutionary, game changing product by a competitor.

Originally posted by InfernoBlade:AMD already has a civil suit open in the US against Intel. I think it's in the discovery phase right now.

Yes, well into it with many motions back and forth, etc.

quote:

This should certainly help that suit. Especially if the US DOJ decides to get in on the action (not likely, even with a more progressive Obama admin running it).

That's "not clear." There are major issues wrt admissability ... I'm not a lawyer and I haven't been following the ins and outs of that one. At least as of a year ago or so it wasn't clear to what degree evidence from the Korean and/or Japanese actions would be admissible.

I believe it is true that the foreign action itself is not ipso-facto evidentiary for the US case ... although even this fact I am not entirely sure of. The degree to which evidence brought into the open by those actions (most of which are Intel sales contracts and testimony of various executives) is admissible was still being argued the last time I heard anything about it.

quote:

But yeah, this fine goes to the EU.

Yes, that is one of the relatively few unarguable facts here.

Now independent of the legal facts in the matter the EU action and the change of administration in US obviously change the "climate" on this issue in the US dramatically. How that will play out is not clear.

Also, at this juncture AMD is in sufficient trouble in the competition that it may be too late.

Good, now that Intel and Microsoft have been dealt with I'm sure the EU's competition regulators will be free to turn their attention to some of the massive, state-sponsored, quasi-monopolies that dominate Europe. Surely they're undaunted by the massive political backlash they'd receive by going after a large firm that isn't based in America...

Originally posted by Straight-line:During that time AMD was majorly and REPEATEDLY dominating Intel speed/performance-wise. And yet if you wanted an AMD processor you'd most likely have to build your own machine.

I worked for an OEM during this time. We sold both AMD and Intel.

While AMD did lead in processors during this time, it was behind in everything else. Their dependency on other's tech to make an AMD platform left them in a tough position. Simply having the fastest processor does not always make you the obvious choice, especially when the performance differences are only a few percentage points.

I watched thousands of machines go out the door, and time and time again the systems that gave us the most trouble were the AMD PCs. Not that the processor was bad, but issues with VIA chipsets and early NForce core logic. Only until the NForce2 came out did AMD have a really solid chipset. I'm sure many of you have had VIA KT-266 chipsets and whatnot that ran fine. For most of the time, they did. But watching feedback on thousands of machines it was painfully clear that our Intel systems didn't have nearly the issues our AMD systems did. I remember telling both our Intel and AMD reps that if I could get a system with an AMD processor on an Intel chipset, things would be perfect.

I don't believe for one moment that AMD could somehow regain the majority share of the x86 market just based on the fact that it's desktop processor was a bit faster than an Intel one. Yes, it was good. I ran Athlons for years because they were faster. But if you were a company looking to make a purchase for hundreds of desktops, it didn't make sense. AMD did not have the reputation for reliability and stability that Intel did, and purchasers were all too willing to sacrifice a few ticks of performance to buy a platform that they didn't have to service nearly as much.

The only monopoly here is that which is created by EU enforced intellectual property laws. Intel is not a monopoly. Not in the CPU business, the GPU business, the desktop CPU business. Their actions were by definition competitive. AMD is a failing company because they are unable to provide a better service or product. The only anti-competitive things that a company can do involve using violence or the threat of it to undermine the actions of the consumer. That includes using government which means IP laws and any other favors or subsidies they get as a result. There is no free market here but they are all playing under the same paradigm. If you don't like the fact that Intel made private, voluntary deals with OEMs to keep AMD products from being used complain to Intel and the OEMs. You have no legitimate authority to tell two individuals or groups of individuals how they wish to do business.

Many of the arguments here are nothing more than logical fallacies.

argumentum ad miserecordiam: "AMD has never been able to break 25% marketshare in the x86 processor market. Intel has always had a monopoly or near-monopoly in the x86 market, even when the products they were selling were overpriced and slow relative to the competition."

argumentum ad consequentiam: "Basically, like it or not, Intel will NOT be permitted to monopolize digital technology. There WILL be some viable competition... even if governments need to step in to create it."

argumentum ad populum : "The EU is not alone in their actions against Intel. The South Korean FTC fined them IIRC (only a paltry $26m, but still), and the Japanese FTC issued some guidelines to them in 2005 because of their actions."

argumentum ad verecundiam: "They are breaking the EU laws."

bare assertion fallacy: "It is more cost effective for companies to be a monopoly and milk the consumers dry than to compete in a free market, so most markets naturally tend to evolve to be ruled by quasi monopolies. The only thing preventing this natural evolution is anti-trust action such as this, or the creation of a completely revolutionary, game changing product by a competitor."

Originally posted by anarchocptlist:argumentum ad consequentiam: "Basically, like it or not, Intel will NOT be permitted to monopolize digital technology. There WILL be some viable competition... even if governments need to step in to create it."

Gee, you don't like it and don't think it should be ... but yeah damnit .. IT HAPPENS. Get real. Stop believing in some narcissistic universe where you make the laws and the rules.

Intel should be fined. But this example of yours indicates that Intel was NOT treated fairly.

The German run cartel did more egregious harm for far longer and their combined fine is alot less than Intel's!

And why so? Problem is none of us know how much sales they made out of it, and the proportion of the fine relative to what EU consumers 'lost' out to this cartel. That was the calculation made by the EU, and it can go for 50 years but if the value 'lost' was relatively small over the 50 years the timescale makes no difference at all.

They're simply not comparable, unless you can provide evidence of the EU's considerations/calculations that show a bias.

"The EU argues that Intel's market dominance ensured it was the only one with the capacity to supply the majority of processors to these companies, which made what might otherwise be optional discounts essential for OEMs."

So what I am to understand is Intel did not NEED to give any discounts since the competitors could not cover the demand in the first place?

Many of the arguments here are nothing more than logical fallacies.[...]argumentum ad populum : "The EU is not alone in their actions against Intel. The South Korean FTC fined them IIRC (only a paltry $26m, but still), and the Japanese FTC issued some guidelines to them in 2005 because of their actions."

That's a statement of fact, not a logical fallacy. There's no logical conclusion being drawn.

quote:

argumentum ad verecundiam: "They are breaking the EU laws."

Again, a simple statement of fact.

If you're looking at this from an anarchocapitalist view, Intel lose because they're too weak to impose their will on the EU. Their choices are to:

a) Trade within the rules set by the EU.b) Believe that they're powerful enough to ignore the EU and continue trading as they wish despite the rules.c) Not trade within the EU.

Anarchocapitalism is flawed if it assumes states just don't, or shouldn't, exist. The state exists to implement the collective will of its citizens, and that collective power creates and enforces laws that, amongst other things, prevents abuse by corporations that would otherwise be too powerful to control.

Originally posted by Edzo:Good, now that Intel and Microsoft have been dealt with I'm sure the EU's competition regulators will be free to turn their attention to some of the massive, state-sponsored, quasi-monopolies that dominate Europe. Surely they're undaunted by the massive political backlash they'd receive by going after a large firm that isn't based in America...

Actally, if you weren't so busy flag-waving and actually learned about these things, you would find out that most of the antitrust-cases and fines EU decrees are targetted against European companies. Of course those cases aren't usually reported in the USA, but still.

Does the EU take steps to assist the company hurt in any of these cases outside of fining the offender?

I imagine civil action with the decision presented by the EU as evidence is the route that must be taken, but I'm not familiar with how the EU would handle something like this. What country does one sue in? Are the rules/laws the same regardless of where the filing is made? Does one have to sue for losses in every country based on losses that would have occurred in that market?

Originally posted by oserus99:So what I am to understand is Intel did not NEED to give any discounts since the competitors could not cover the demand in the first place?

They prevented AMD from developing their business to the point where could have done more. You might argue that AMD could not have gone anywhere useful with that, and you might be right, but the factual basis of Intel's abuses is very well established.

They were convicted of the illegal things they did to prevent competition, not the failure of the competition to compete.

quote:

Originally posted by helios01:There may be a legit reason to punish Intel but right now, this will only serve to hurt the industry and it won't help AMD one bit.

It may, in that it's significantly more difficult for a company convicted of anticompetitive behavior to terminate licenses to patents.

Originally posted by Bochista:Does the EU take steps to assist the company hurt in any of these cases outside of fining the offender?

No. In principle there can be suits for damages however. I am not sufficiently informed about EU law to be able to comment as to whether an AMD damage suit against Intel could be filed, would prevail, or what damages might be if it did prevail.

In the US AMD IS SUING INTEL DIRECTLY FOR DAMAGES. This is completely different than a regulatory/anti-trust finding. At the present time there is no regulatory process against Intel in the US ... though I remember comments to the effect after the change of the administration that the issue was being "reconsidered"

Unless you have been living under a rock, not reading anything except ars dweebery you must have seen the recent articles all over to the effect that

quote:

May 11, 2009: The tenor set by the Justice Department's new antitrust enforcer, Christine Varney, would bring the U.S. more in line with the European Union and make it tougher for companies that dominate their markets to abuse their power, experts said.

In her first public comments since taking office, Varney said the financial crisis has shown that the free market doesn't always correct itself. .....

She said the Obama administration was repealing antitrust guidelines issued by the Justice Department last year that, in her view, raised too many hurdles to government action.

"There was a high cost to standing aside. We must change course and take a new tack," Varney, an assistant attorney general, said in a speech to the Center for American Progress, a liberal Washington think tank. "It is time for the antitrust division to step up their efforts."

Varney, a Federal Trade Commission member during the Clinton administration, would not discuss specific companies or sectors on which the antitrust division would focus.

Instead, she delivered a broad warning to big companies that the Obama administration would vigorously enforce laws preventing collusion, market dominance and other antitrust issues that critics claimed were largely ignored during the Bush years.

"The lessons learned from history are twofold. First, there is no adequate substitute for a competitive market, particularly during difficult economic times. Second, vigorous antitrust enforcement must play a significant role in the government's response to economic downturns to assure markets remain competitive," she said. "This country's prior experience raises the question, at least in my mind, whether relaxed antitrust enforcement has contributed to the current state. Is too big to fail a failure of antitrust?"

Her comments were a sharp rebuke to her predecessors in the Justice Department's antitrust division. During the Bush administration, many companies took their complaints to European regulators, who have been more aggressive in trying to rein in large corporations.

European regulators, for example, have been actively investigating antitrust claims against computer chip giant Intel Corp. resulting from a complaint by rival Advanced Micro Devices Inc.

According to AMD, Intel paid computer makers and retailers to avoid AMD's products. Intel argues that the rebates it offered were legal and are a common reward for buying in high volumes.

Regulatory action, including possible fines, could come this week.

Timothy Bresnahan, a Stanford economics professor and former antitrust official in the Clinton administration, said Varney's announcement would bring the U.S. back into "the mainstream of pro-market thinking."

"The division will now pursue cases where an established monopoly blocks new competition that would benefit consumers. They have repudiated the extreme view that these problems never happen," Bresnahan said in an e-mail. "What will be interesting to see in the coming months is whether they actually have some enforcement actions in mind or are just making a general policy statement."

Without naming names, Varney said companies with dominant positions in their markets have had the ability to push aside competitive threats and stifle innovation and "may have attempted to do so without fear of government prosecution."

And yeah... the announcement of EU action came, bingo.

Now ... you tell me, Varney isn't naming names ... but everybody and their dog and their dog's fleas presumes Intel is pretty much top of the list.

Also ... it was a bit farther back but there was a HUGE price-fixing enforcement against almost all the usual names of world agribusiness over collusion in price fixing on Lysine from Corn, and both the EU and the american FTC fined a list of big names big bucks ... just google Lysine+price+fixing ... was a big deal.

Now nobody here is complaining about that I presume because ... why?

Because it's agriculture and not technology?

Because somehow anticompetitive practices in a critical protein which poor people need is indeed a lot uglier than computers?

Originally posted by Edzo:Good, now that Intel and Microsoft have been dealt with I'm sure the EU's competition regulators will be free to turn their attention to some of the massive, state-sponsored, quasi-monopolies that dominate Europe. Surely they're undaunted by the massive political backlash they'd receive by going after a large firm that isn't based in America...

Actally, if you weren't so busy flag-waving and actually learned about these things, you would find out that most of the antitrust-cases and fines EU decrees are targetted against European companies. Of course those cases aren't usually reported in the USA, but still.

Of those listed companies, I believe ONE is American (Otis, at number 10).

The argument that "EU is just picking on American companies!" simply does not hold.

You're also leaving out the fines Microsoft had to pay- just under 500 million euros initially, and there was another for 900 million a year or two ago. Personally, I think there's also a difference between going after companies who are colluding and engaging in price-fixing, than the more vague and general anti-competitive practices of Intel or Microsoft.

Then again, maybe it's mostly to do Europe not producing the kind of market-dominating tech companies like Intel, Microsoft, or Google.